FDIC's Bair Gets Nod to Stay, Address Housing Mess

WASHINGTON -- The Obama administration intends to keep Federal Deposit Insurance Corp. Chairman Sheila Bair in her post, extending the tenure of one of the government's most provocative and confrontational figures during the banking crisis.

Ms. Bair's term doesn't expire until 2011, but she has said she would step down if the Obama team wanted someone new to lead the agency. President George W. Bush nominated her in 2006.

Obama's Cabinet Takes Shape

With her retention, the Obama administration has largely put its faith in the team that has been shaping U.S. policy amid the financial crisis, including Ms. Bair, Federal Reserve Chairman Ben Bernanke and Treasury Secretary nominee Timothy Geithner. It also underscores the administration's desire to devote more resources to fixing the housing mess, a main focus for Ms. Bair.

"I do think that the FDIC and Sheila Bair have had the sense of urgency about the problem that I want to see," President-elect Barack Obama said Wednesday in an interview with CNBC.

Ms. Bair's presence in the administration could spark fireworks. Beloved by her supporters and disliked by opponents, Ms. Bair has been willing to lock horns not only with outgoing Treasury Secretary Henry Paulson, but also with Messrs. Geithner and Bernanke over the FDIC's role.

She has run ahead of the Bush White House in pushing for her preferred policies, leading some Democrats to champion her ascent. That could become a problem under Mr. Obama, whose White House will likely keep a tight hold on decision making relating to the economy and financial system.

During negotiations over the $700 billion bailout package for the financial sector, Democrats repeatedly tried to give Ms. Bair a role on an oversight board with influence over how the money was spent, despite objections from Treasury officials. Eventually, her agency was largely left out of the final law.

ENLARGE

FDIC Chairman Sheila Bair, shown here testifying before lawmakers in November, is expected to remain in the post in the Obama administration. Ms. Bair has locked horns over the FDIC's role with outgoing Treasury Secretary Henry Paulson, left, and Federal Reserve Chairman Ben Bernanke.
Landov

It is unclear if the Obama administration has conveyed its intentions directly to Ms. Bair, who said through an agency spokesman that she plans to remain focused on her job.

"Given the current environment, my focus remains on the important work of the FDIC to protect depositors and maintain confidence and stability in the financial system," she said. "This work will be my first priority as long as I am chairman of the FDIC."

The 54-year-old Kansas Republican has been a key player in many of the government's controversial actions to contain the financial crisis, from the agreement to temporarily extend unlimited insurance on certain bank-deposit accounts to the new guarantee on certain types of bank debt. She also took unprecedented steps to help prevent the collapses of Wachovia Corp. and Citigroup Inc., and oversaw the confidence-jarring failures of IndyMac Bank and Washington Mutual.

"I'm very pleased they've done this," House Financial Services Committee Chairman Barney Frank said of the Obama administration's decision to keep Ms. Bair. The Massachusetts Democrat said his party would push one of Ms. Bair's foreclosure-prevention plans in the House next week.

The FDIC faces a challenging stretch. Dozens of additional bank failures are expected this year. Ms. Bair is working to rebuild the agency's deposit-insurance fund, which has fallen to its lowest level in years, and she has beefed up her division that handles bank failures.

Her tenure at the FDIC has been marked by a rapid expansion of the agency's power. When Wachovia neared collapse in late September, Ms. Bair took an unprecedented step and agreed to backstop losses as part of a government-assisted sale to Citigroup. Several days later, Citigroup officials were outraged when Ms. Bair didn't step in to block rival Wells Fargo & Co. from snatching away Wachovia.

During marathon negotiations less than two months later, some government officials wanted Ms. Bair to cite the same authority and backstop Citigroup's assets after public confidence in the bank evaporated. Ms. Bair resisted. Instead, the Treasury and Fed agreed to shoulder a large portion of future losses.

Some Treasury officials left those talks furious at Ms. Bair, alleging that she failed to recognize the significance of Citigroup's condition to the financial system.

She is best known for her relentless push to create a streamlined method to forestall foreclosures dating back to 2007. Ms. Bair's most recent plan envisioned offering banks an incentive to modify mortgages by having the government agree to share in the loss of any new loan that fell into default.

Other Bush administration officials saw flaws in her plan and worked on a separate strategy to reduce the interest rates on distressed loans. Eventually, Mr. Paulson quashed both ideas.

Treasury officials long believed that the best way to fix the mortgage mess was to lower interest rates, not to use a more complex type of guarantee program.

The futures of other bank regulators are less certain. John Reich, director of the Office of Thrift Supervision, is expected to leave in the next month. Several industry officials in Washington said they expect the Obama administration to try to push Comptroller of the Currency John Dugan out of his post as the top regulator for national banks, but a spokesman for Mr. Dugan said the regulator planned to remain in his post until his term expires in several years.

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